The road for Alibaba (NYSE:BABA) over the past year hasn’t been smooth. First, trade war fears amped up the stock’s volatility. Now, concerns regarding the coronavirus are in the spotlight. But Alibaba stock ultimately found a way to power more than 29% higher over the past 12 months. And I think it will continue to do so, regardless of the virus concerns affecting many other Chinese stocks.
That is, of course, assuming that the spread of the virus is contained sooner than later, and the death toll does not increase dramatically.
Right now it’s — understandably — difficult to make such an assumption. This is especially true given that we’re not certain we’re getting the full story from the Chinese government.
But facing tough, unpredictable situations like this while accessing established facts is the nature of the beast with investing. The risk for Alibaba stock and how the virus might affect it is no different.
Ultimately, what all that means is that while it might be too soon to make a buy or sell case for the stock in the current environment, it’s still important to consider the company’s strengths and not be consumed too greatly by fear. In doing so, we can better assess if the risk is worth taking.
Is Alibaba Stock Still Worth a Look?
Although easing of trade relations between the U.S. and China helped bolster the stock in 2019, the long-term prospects for the “Amazon of China” are what have truly propelled it over the years. And these prospects are what will continue to give the stock strength despite the looming impact of the virus.
Specifically, Alibaba’s nature as a multifaceted company that’s becoming an integral part of the day-to-day operations in China is perhaps its greatest strength. As the Wall Street Journal defines it, the company “is a marketplace, a search engine and a bank, all in one.”
As alluded to earlier, the frequent comparisons to Amazon (NASDAQ:AMZN) are not unfounded.
In its most recent earnings report, the company demonstrated significant growth in its ecommerce business with sales increasing 35%. And it demonstrated continued development in its cloud ventures, with cloud computing sales rising 64% year over year.
Impressively, the company claims that “at the end of August, 59% of all registered companies in China are customers of Alibaba Cloud.”
Alibaba is so well integrated with China’s future that many see it as “a leading proxy for China’s economic growth.” Clearly, the company’s power and ability to expand is undeniably tied to the wellbeing of Chinese citizens. As such, its no surprise that investors are worried about how the virus might affect the company.
But, assuming a resolution for the virus is inevitable, then the long-term impact on Alibaba might be overstated. Analyst Steven Sears writes for Barron’s that “[t]he economic hiccups caused by the virus should be viewed as short-term distractions that create opportunities for long-term investors to buy shares.”
The Bottom Line on Alibaba … For Now
True as this may be, I think it’s too soon to truly evaluate the threat of the virus. It’s also too soon to make a sound short-term investment thesis with this variable in the mix.
Some analysts are trying to downplay its significance. They state that the overall effect of SARS was minimal and it will be the same for this virus. But these aren’t the same viruses, and this isn’t the same year as 2002-2003.
As New York Times writer Peter Goodman points out, “[i]n the nearly 20 years since SARS, China’s importance in the global economy has grown exponentially.” He uses this as a foundation to explain faults in the comparison between the two viruses and the subsequent expectations regarding its inevitable economic influence.
One thing is certain, however. It’s too soon to determine how significant the impact of this virus will be on Alibaba stock and the Chinese/global economy.
In the very long term, I think everything will turn out well for the company. More importantly, I think everything will turn out well for the world … at least when it comes to the virus.
All of that is to say that Alibaba isn’t going anywhere anytime soon. As long as the coronavirus outbreak is resolved, it will get back on track. And the stock should ultimately be a highlight in anyone’s portfolio when the Chinese economy recovers.
Robert Waldo has been a web editor for InvestorPlace since 2016. As of this writing, he did not hold a position in any of the aforementioned securities.
